Liberty Global's bid for Virgin Media is John Malone's latest battle with Murdoch

It is more than a decade since Rupert Murdoch and John Malone last went into
battle. The two billionaire media chiefs were both vying for control of
America’s biggest satellite broadcaster, DirecTV, in a furious tug of war
fuelled as much by egos as strategic interests.

Liberty Global, the media group chaired by John Malone, is in talks to buy British cable television company Virgin Media for around £14bn. Such a move would pit Mr Malone’s business directly against BSkyB

The men only called a truce when they agreed to trade assets in a way that would boost both their empire. Mr Murdoch’s sprawling media group, News Corporation, sold its one-third stake in DirecTV to Liberty Group, the US cable television company owned by Mr Malone. In return, Liberty Group sold its 16pc stake in News Corp, handing the Murdoch family tighter control of the company he founded.

The exchange levelled the playing field between the two companies, and prepped them for an even more combative relationship in the future, with each company going head to head unswayed by divided interests. It is that neat conclusion in 2000 which makes it unlikely that Mr Malone and Mr Murdoch will reach such an amicable deal this time around, with battle transported to UK shores.

Today it emerged that Liberty Global is in talks to buy British cable television company Virgin Media for around £14bn. Such a move would pit Mr Malone’s business directly against BSkyB, the satellite firm 39pc-owned by News Corp and one of the jewels in the Murdoch empire. Although the US-based Liberty Global has already planted itself on this side of the Atlantic - with operations in Belgium, the Netherlands and a string of Eastern European markets - a Virgin Media takeover would mark the first time it had parked its tanks directly on BSkyB’s lawn.

There is still some way to go before the deal is finalised, however. Banks representing Liberty and Virgin spent yesterday wrangling over the price Mr Malone’s company wants to put on Virgin. Sources close to the British cable television firm, which was born out of the 2006 merger of Telewest and NTL, made it clear that it was not under any pressure to sell and that they would not entertain an offer that did not take account of its progress over the last few years.

Virgin Media’s share price has charted an impressive course under chief executive Neil Berkett, climbing from a low of $3.26 (£2.08) a share just over four years ago to more than $45 by mid-afternoon trading yesterday in New York. The company also moved into profit for the first time last year – becoming the first UK cable operator ever to do so – and is expected to nearly triple boost in pre-tax profits to $266m on broadly flat sales of $4.1bn when it reports its annual results today. An extensive fibre network and innovations such as Virgin Media’s TiVo service, one of the first television platforms to allow viewers to scroll backwards in the programme guides to shows which they had missed in the past, have helped win over 4.9m customers.

But for all these selling points, arguably the biggest is Virgin Media’s unique standing in the UK market. There are few, if any, affordable assets that would give foreign entrants such a strong platform with which to take on BSkyB, which, with 10.7m customers is already around twice the size of Virgin. Rival BT is out of the price range of most potential buyers eyeing the UK market, and comes with pensions baggage. Meanwhile, the much smaller TalkTalk is still dealing with operational issues and customer service problems that would put off many would-be acquirers.

Virgin Media’s position as the only obvious target of its kind is likely to prompt interest from other would-be buyers afraid of missing out on a one-time opportunity (major media companies such as Time Warner and Comcast are discussed as potential bidders). But it is also expected to keep the price-cautious Liberty Global in the game for longer. Having a foothold in Britain is crucial to Liberty’s global ambitions,” said Adrian Drury, an analyst at Ovum. “Although Liberty’s play for Virgin is likely to be driven by its long-term vision for the value a foothold in the UK will have for a pan European business, and the competitive need to fight News Corp at this scale, in the near term, it will make the UK the ring for the straight slug-fest between two global pay-TV heavyweights,” he said.

Whilst Mr Malone’s company is working on its overtures to Virgin Media and its founder, Richard Branson, Mr Murdoch will be hatching his new gameplan. Ordinarily, the media chief might be expected to counter Liberty Global’s bid for Virgin with one of his own but his control over BSkyB means that plan is a dead cert to run into competition issues.

Instead, BSkyB will need to think about how it can maintain its lead in the increasingly competitive pay-TV market. In the past, it has done this by launchinginto new areas such as landline telephone services and broadband, all of which help it to squeeze more cash out of its existing customers, and to lure more of them over from rivals. However, the company has eschewed game-changing moves into areas like mobile service and is now reliant on making incremental tweaks to its current range of services, for example offering customers more access to content on the move.

Analysts warned yesterday that Liberty’s potential takeover of Virgin Media could pave the way for a tie-up with Virgin Mobile - putting Mr Murdoch on the back foot. Liberty’s tilt at Virgin Media might be close to crossing the finish line, but Mr Malone’s newest battle with Mr Murdoch is only just getting started.